Salary sacrifice is a simple way to build your pension through an umbrella company. You agree to give up part of your gross pay, and your umbrella puts that amount into your pension before tax or National Insurance are worked out.
A reputable umbrella company holds dual accreditation from FCSA and Professional Passport. Talk to us if you want to set up salary sacrifice or change an existing arrangement.
What is salary sacrifice for umbrella contractors?
Salary sacrifice for umbrella contractors means you reduce your gross pay by a set amount each pay period. Your umbrella sends that amount to your pension provider before it calculates income tax and NIC. You pay less tax and NIC because your taxable gross is lower.
This is different from a pension contribution from net pay. With net pay contributions, tax and NIC come out first. With salary sacrifice, they never apply to the sacrificed amount.
Your umbrella handles the payroll side. You agree the sacrifice amount. It appears as a deduction on your payslip before the tax calculation runs.
How does salary sacrifice save you tax and NIC?
Salary sacrifice lowers your gross pay before PAYE and National Insurance are calculated. You pay income tax and employee NIC only on the lower gross figure. At basic rate, every £100 sacrificed saves around £28 compared with a net pay contribution.
Here is the breakdown at 2026-27 rates for a basic-rate taxpayer.
Without sacrifice: earn £100, pay 20% income tax (£20) and 8% employee NIC (£8). You contribute the remaining £72 to your pension.
With salary sacrifice, £100 goes straight to your pension. You pay no income tax or NIC on it. The saving is £28 per £100 sacrificed.
At the higher rate (40% income tax), the saving is larger. Every £100 sacrificed saves £40 income tax plus £8 NIC, so the total saving is £48.
Check the umbrella salary calculator to model your own sacrifice amount.
How much can you sacrifice through your umbrella?
You can sacrifice any amount above zero until your remaining pay reaches the National Minimum Wage floor of £12.71/hour. You cannot sacrifice more once you hit that floor. The annual allowance for all pension contributions is £60,000 per tax year.
Your umbrella works out your NMW floor using your contracted hours. Once it knows the floor, the maximum sacrifice amount is clear. Most contractors on day rates above £200/day have plenty of room.
The annual allowance is £60,000 or 100% of your earnings, whichever is lower. It rarely limits contractors unless they make very large top-ups. Speak to a financial adviser if you are near that limit.
How does NMW limit your salary sacrifice?
After salary sacrifice, your remaining pay must still equal or exceed £12.71 per hour. Your umbrella applies this floor automatically. It does not process a sacrifice that drops your pay below that level.
Here is how the floor works in practice. Take a contractor working 40 hours a week. NMW floor = 40 hours x £12.71 = £508.40/week minimum remaining pay.
At £700/week gross pay, the maximum sacrifice is £700 minus £508.40 = £191.60/week. The umbrella can process up to that amount.
If gross pay is £520/week, the maximum sacrifice is just £11.60/week. At very low assignment rates, sacrifice is almost impossible.
At higher rates, the floor is usually not a problem. At £350/day, gross pay works out at roughly £1,498/week. That leaves plenty of room above the NMW floor.
One more thing. Salary sacrifice reduces your gross pay. Benefits like Statutory Maternity Pay and Statutory Sick Pay use gross pay as their base. Heavy sacrifice reduces those entitlements. Factor that in before you increase your sacrifice.
A worked example at 2026-27 rates
Basic-rate taxpayer, 40 hours/week, £800/week gross pay after umbrella costs. Sacrifice amount: £100/week.
Without salary sacrifice:
| Item | Amount |
|---|---|
| Gross pay | £800.00 |
| Income tax (20% above weekly allowance) | -£100.54 |
| Employee NIC (8%) | -£48.20 |
| Employee pension (5% auto-enrolment) | -£26.46 |
| Net pay | £624.80 |
| Pension pot this week | £26.46 (employee) + £15.88 (employer) = £42.34 |
With £100/week salary sacrifice, on top of auto-enrolment:
| Item | Amount |
|---|---|
| Gross pay before sacrifice | £800.00 |
| Salary sacrifice | -£100.00 |
| Taxable gross | £700.00 |
| Income tax (20% above weekly allowance) | -£80.54 |
| Employee NIC (8%) | -£40.20 |
| Employee pension (5% auto-enrolment on lower base) | -£23.15 |
| Net pay | £556.11 |
| Pension pot this week | £123.15 (employee including sacrifice) + £13.88 (employer) = £137.03 |
The net pay drops by £68.69. But the pension pot grows by £94.69 more. You give up £68.69 in take-home pay. But £94.69 more goes into your pension. That is the effect of sacrifice.
See how umbrella take-home pay adds up for the full breakdown of all deductions.
How do you set up salary sacrifice with your umbrella?
Contact your umbrella and ask to set up salary sacrifice. Tell them the amount or percentage you want to sacrifice each pay period. They update your payroll record and the change appears from your next payslip.
With DASA, you call or email the payroll team. We confirm the maximum sacrifice allowed under your NMW floor and set it up. It usually takes one pay cycle.
You can change or stop the sacrifice at any time. Ask us to adjust it when your rate or working hours change.
To see how sacrifice appears on your payslip, read how to read your umbrella payslip.
What to watch out for
Check three things before you increase salary sacrifice. Check your NMW headroom, the effect on statutory benefits, and your annual allowance. Confirm all three before you set a higher sacrifice amount.
NMW headroom is your gross pay minus the NMW floor for your hours. Your umbrella calculates this. Ask for it in writing.
Statutory Maternity Pay and Statutory Sick Pay use your post-sacrifice gross as their base. Statutory Paternity Pay does too. Heavy sacrifice reduces what those benefits pay out.
The annual allowance is £60,000 for 2026-27. If total pension input goes above this, you face a tax charge. Total input includes sacrifice, employer contributions, and any personal top-ups. For most contractors, this limit is much higher than their total contributions.
Read the workplace pensions for umbrella contractors for the bigger pension picture. Our umbrella PAYE tax explained covers all deductions in full.
Frequently Asked Questions
What is salary sacrifice for umbrella contractors?
You agree to reduce your gross pay by a set amount. Your umbrella sends that amount to your pension before tax and NIC are applied. You pay less income tax and employee NIC because your taxable gross is lower.
How much tax does salary sacrifice save through an umbrella?
At basic rate (2026-27), every £100 sacrificed saves approximately £28: £20 income tax plus £8 employee NIC. At the higher rate, the saving rises to around £48 per £100 sacrificed.
How much can I salary sacrifice through my umbrella company?
You can sacrifice up to the point where your remaining pay equals the NMW floor of £12.71/hour. Above that floor, you can sacrifice as much as you choose up to the £60,000 annual pension allowance.
How does NMW limit salary sacrifice through an umbrella?
After sacrifice, your remaining pay must still meet the NMW of £12.71/hour for your contracted hours. Your umbrella calculates this floor and stops sacrifice at that point. At higher day rates there is usually significant headroom.
Does salary sacrifice affect statutory benefits?
Yes. Statutory Maternity Pay, Statutory Sick Pay, and Statutory Paternity Pay are based on gross pay after sacrifice. Sacrificing a large amount reduces what those benefits pay out.
How do I set up salary sacrifice with DASA Umbrella?
Contact the DASA payroll team, tell us the amount you want to sacrifice each pay period, and we set it up. The change appears from your next payslip. You can adjust or stop it at any time.
